Anger by U.S. farmers threatens ambitious Pacific trade pact

U.S. farmers are in an uproar over signs Japan will maintain some barriers to agricultural exports under a Pacific trade pact, which threatens to unravel a deal that is central to U.S. efforts to retain economic and security influence in the region.

Four years into Trans-Pacific Partnership (TPP) talks, U.S. negotiators are fighting to balance the goal of total tariff elimination with the sensitivities of Japanese and American farmers and the needs of other trading partners.

Central to President Barack Obama's strategic shift toward Asia, the TPP would connect a dozen economies by cutting trade barriers and harmonizing standards in a deal covering two-fifths of the world economy and a third of global trade.

After an April summit between Obama and Japanese Prime Minister Shinzo Abe, a compromise seems likely to allow Tokyo to keep some protection for goods like beef, sugar, dairy or wheat, judging by a change in tone from U.S. officials in recent weeks to talk about tariff elimination "to the maximum extent possible."

This contrasts with the original goal, upsetting American farmers. Dairy farmers have threatened to withhold their support for the deal if the markets are not opened in a meaningful way, and other farm groups have called for Japan to be excluded from the trade deal.

"We are not going to allow a bad deal with Japan to go forward," said Nick Giordano, vice president of the National Pork Producers Council, which represents pig farmers. "It's going to invite other countries in the TPP to scale back what they are willing to give the United States."

Past U.S. trade deals have also fallen short of total tariff elimination. But the extent of the concessions is crucial, especially in winning support of the influential U.S. farm lobby, which could scupper TPP in Congress.

A deal that expands U.S. farm exports and is backed by farmers could help Obama win over skeptical Democratic lawmakers who associate trade deals with lost jobs. Farm lobby support is also crucial for Republicans, who are generally pro-trade but would likely reject a deal opposed by farmers.

A deal with broad agricultural exemptions would be "dead on arrival in the House of Representatives," said Republican Aaron Schock, a member of the congressional trade panel which has called a hearing on agriculture trade for Wednesday. He noted that 60 seats in the House represent agriculture-dominated districts.

The United States is the world's biggest farm exporter. It greatly outstrips the next two biggest farm exporters in the TPP, with exports more than three times greater than Canada and five times greater than Australia.

U.S. Trade Representative Michael Froman insists a final Japan deal will be comprehensive and give American farmers better access to Japanese markets.

"I'm confident that TPP will cover the full range of Japanese agricultural products," he told Reuters. "Our overall goal for TPP is to deliver market access gains across the board, including through tariff elimination, that can be maximized by American farmers and ranchers."

How that would happen is unclear. There are many variables, including which goods will have no tariffs, how quickly tariffs will be phased out and which goods might retain tariffs.

"You can get a deal that covers 95 percent of tariff lines but it's not a good deal if the 5 percent of tariff lines that it leaves out are the ones you are most interested in," a former U.S. agriculture trade negotiator said.

DOMINO EFFECT

Many see the 2012 U.S.-Korea trade deal as a benchmark. It excluded rice and kept tariffs on goods such as milk powder in exchange for a bigger duty-free import quota.

"We didn't want to throw that agreement away because it did not eliminate every single tariff line. We are pragmatic," said Jaime Castaneda, senior vice president of the U.S. Dairy Export Council.

But if Washington fails to pry open Japan's markets sufficiently, experts fear it will have a domino effect.

A "TPP-lite" would give trading partners few incentives to accept rules on intellectual property and protection for foreign investors, an important element for U.S. companies.

"We cannot sign off 21st-century rules and ignore 20th-century unresolved market access issues, of which deep pockets of high protection in agriculture ... are unaddressed," New Zealand Trade Minister Tim Groser said on Friday, warning the TPP could still stumble.

With talks splintered into bilateral negotiations, trading partners say they fear there will be an uneven playing field at the end, undermining their ability to sell the deal at home.

Many deals are interdependent.

The United States wants better access to Japan and Canada before allowing New Zealand dairy farmers to sell more in America.

New Zealand, which exports 95 percent of its milk but accounts for 2 percent of global supply, might settle for a good deal from Japan and Canada and not then press the United States. To win concessions from Canada and Japan, the United States may have to open its sugar market to Australia.

"It's going to be a process of give and take," said Representative Ron Kind, leader of the pro-trade New Democrat Coalition. "My suspicion is that we are not going to be dropping all the tariffs on our side so it would be a bit disingenuous for us to insist on that for other countries." (Editing by Jason Szep and Leslie Adler)

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About the Author:

Krista Hughes, Reuters

"I write about trade from Washington DC, where I moved in August 2013. In nine years with Reuters, I have written about the Latin American economy from Mexico City and European Central Bank from Frankfurt. In a previous life, I worked in Australia and covered the economy and national politics for local news agency AAP."